How to Avoid Loan Scams

How to Avoid Loan Scams

Written by Caitlin Wood
Last Updated March 9, 2020

Don’t forget to check out our video on this topic.

We live in desperate financial times, in which families and small businesses are looking for ways to stay afloat, something that unfortunately opens the doors to scammers who can take their victims for thousands of dollars in return for a loan that never comes. While some scams are readily identifiable, some are not, and they can cause havoc to their victim’s financial life.

Many payday loan offers work outside the law and promise fast service, but how can you know which ones are real? Fortunately, there are a few good ways to determine whether you are falling for a scam or you are carrying out a legitimate transaction. The best thing to do in most cases is to follow your instinct. If something sounds too good to be true, it probably is, so act cautiously before giving out your personal information.

Watch Out For Red Flags

There are a number of signs to look out for when trying to protect yourself from scammers. Here are some things to help you decipher a fraudulent lender over a legitimate one.

Pre-appovals – Beware of emails saying you have been pre-approved for a loan you never requested. In many cases, unsolicited emails can lead to scammers and even identity theft.

Hard to contact – Unscrupulous lenders will avoid disclosing their location and contact information, so if it is not readily available, be wary of what they are offering.

Credit check – While credit checks are not always necessary for payday loans, a lender that only requires your bank account information may not be what you expect, and you can be in danger of being scammed.

loan trap

Unclear location – If the lender does not have a brick and mortar office and offers to contact you, instead of the other way around, you should probably look for another option.

Upfront payments – You should never have to pay money up front in order to receive a loan. If the lender asks for money prior to depositing the promised loan, it is best you cancel any transaction.

Poor grammar – Take a look at the spelling and grammar used in the body of the email. Scammers normally have bad writing skills because they are based in other countries.

Email address – When you are asked to respond to an email other than the one in the header, you may be looking at a scam. If this is the case, it’s best you not respond at all and report the email to your ISP as a phishing attempt.

Do Your Research

Even though you may be under pressing need to get a loan as soon as possible, it is always best to take your time to research potential lenders to avoid becoming a victim. The best way to go about this is to search for the lender’s name online, together with the word “scam” or “complaint”. Doing this will bring up any problems other people have had with a certain company, and will help you to make a decision.

In many cases no information can be found online about a certain lender. If this is the case, it may not have an established reputation, so a thorough check with the Better Business Bureau and the financial regulators of your state can give you a good idea of who you are dealing with. It is always best to work with established and registered lenders, as they have a reputation to keep and will very likely not try to scam you.

Run a search of the lender’s website on WhoIs to determine when it was started and who owns it. In many cases, scammers can use a website for a few weeks and then disappear with their victims’ money, so be wary of any new companies and look into them carefully before deciding to accept their offer.

A mapping application, such as Google maps, can be a very valuable ally when you are researching payday lenders. Do a search of the company’s address and look at it at the street view level. If it turns out to be a vacant lot, somebody’s house or something doesn’t feel legitimate, stay as far away from them as you possibly can.

What Do You Do If You Think You’ve Been Scammed?

If you do become the victim of a scam, contact your local Better Business Bureau and police department.  If you’ve given out any personal or financial information you should also contact the Canadian Anti-Fraud Centre to report the incident. You can contact them by phone at 1-800-495-8501 or through its Fraud Reporting System online.

Final Thoughts

One thing that can’t be stressed enough is that if it seems too good to be true, it probably is, and you may become the victim of a scam. Always make sure you feel comfortable with the lending institution before you give out your bank account and personal information to them. Make sure you weigh your options carefully and look for alternative solutions before you get involved in a payday loan, especially because it is the most expensive financial product on the market, and you may end up paying much more than you bargained for.

Rating of 5/5 based on 10 votes.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Make Smarter Borrowing Decisions

Whether you have good credit or poor credit, building financial awareness is the best way to save. Find tips, guides and tools to make better financial decisions.

Industry Spotlight

What's happening with Canada's credit industry?

goPeer — Helping Consumers Achieve Financial Freedom by Connecting Canadians Looking For Financing With Canadians Looking to Invest

goPeer — Helping Consumers Achieve Financial Freedom by Connecting Canadians Looking For Financing With Canadians Looking to Invest

goPeer is Canada's first consumer peer to peer lending platform and connects creditworthy Canadians looking for a loan with everyday Canadians looking...

Read Post
Find The Best Rate
In Your Region
Best Personal Loan Provider by Greedy Rates

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Keep Track Of Your Credit Score

Subscribe with Credit Verify to monitor your credit rating and get your free credit score.